Cryptocurrency has gained a great deal of traction ever since Bitcoin’s launch in 2009. In the UK, government research into the new technology found that the digital currency now has a wide range of forms and uses. Cryptoassets are increasingly used as a means of exchange, a form of investment and a form of raising capital.
One of the prominent points of interest in the cryptocurrency landscape is the security token. A security token is a device that grants the owner access to a network service app. It generates its value from external and tradable financial assets, giving its owner the right to profits and dividends in a legal third-party entity.
With security tokens innovating how investing is done, online platforms are offering these assets globally. Here’s a list why security token offerings (STOs) create a bustling virtual asset trading space:
A security token acts as an investment contract. It represents legal ownership of a physical or digital asset that has been verified on the blockchain. For investors, a security token represents a legal right to ownership of the inherent value of the issuing company. The token takes its value based on a metric related to corporate performance. The value taken from the performance of a company makes it a security. As the company thrives, the token gains value and investors sell for a profit.
Additionally, these tokens represent the underlying interest in an equity/debt position, voting rights, profit sharing, dividends and other holders’ benefits. These tokens provide more structure, rights, codes of conduct, and corporate governance.
An adequately governed securities market should have healthy capital information, protection of investors from external fraudulent activities and proper compliance controls for fairness and order in speculative markets. Security tokens, by design, accomplish all of the criteria because of its fully diluted but immutable transparency framework.
Security tokens allow investors to gather information about the company or the issuer on a regular basis — with complete visibility on all the tokens given, promised or encumbered. This is a powerful point to consider by anyone attempting to set foot in the crypto landscape. All network participants share the same documentation as opposed to individual copies.
Promise of liquidity
The promise of global liquidity is the security token’s most valuable characteristic because it allows citizens to invest in projects in foreign countries. A security token has the ability to be traded on global security token marketplaces and exchanges, which are currently impossible for traditional securities. For instance, traditionally illiquid assets like real estate can be available to global investors eligible to buy, sell and trade in a compliant way.
Additionally, companies that offer security tokens allow investors to exit seamlessly without processing via boards, accountants and lawyers. When using traditional paper-heavy processes, trade usually becomes time-consuming due to human error and third-party mediation. With security tokens, clearing and settlements occur much quicker because everyone has access to the same information with blockchain streamlining and automating processes.
Cryptocurrency has become prominent because of its fast development and decentralised nature. Security tokens are predicted to overtake Initial Coin Offerings (ICOs), with the promise of granting its owners a direct and liquid economic portfolio that offers fast returns.